Climate change risk, investor sentiment, and the performance of new entrant firms

Shima Amini (), Sofia Johan (), Eilnaz Kashefi-Pour () and Abdulkadir Mohamed ()
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Shima Amini: Leeds University Business School, Accounting and Finance Division
Sofia Johan: Florida Atlantic University, College of Business
Eilnaz Kashefi-Pour: The Department of Finance, Birmingham Business School
Abdulkadir Mohamed: Leeds University Business School, Accounting and Finance Division

Small Business Economics, 2025, vol. 65, issue 4, No 18, 2539-2566

Abstract: Abstract We explore how climate change risk affects the performance of new entrant firms seeking external capital by using a sample of Initial Public Offerings (IPO) from 2000 to 2020. We find climate change risk negatively affects underpricing and the long-term performance of the IPO firms. We further investigate the moderating effect of investor sentiment on the relationship between climate change risk and IPO long-term performance. We find that the negative effect of climate change risk on IPO performance is stronger for firms going public when investors are pessimistic. Exploring the channels through which climate change risk affects IPO performance, the results show that the effect of climate change risk on IPO underpricing is channeled through the IPO volume, while long-term underperformance is channeled through growth opportunities. Overall, our results are robust to various model specifications, firm-level measures of climate change risk, CEO traits, endogeneity concerns, and exogenous shocks.

Keywords: Initial public offering; Climate risk; Investor sentiment; G32; G40; D80 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s11187-025-01067-6

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